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Grey Market and Grey Market Premium



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The grey market is an unofficial market and is a risky one.

Do not induldge in trading in the market because it might be an illegal one too.

However, considering grey market data is available publicly on websites, you may consider tracking it for the sake of understanding only.

In the grey market, Initial Public Offer (IPO) applications are bought and sold before they are available for trade on stock exchanges.

Grey Market Premium

If the shares list at a premium to the offer price, the participant in the grey market makes a profit.

The premium rates are called called Grey Market Premium (GMP).

'Grey market premium (or grey market price) is a premium amount in rupees at which IPO shares are being traded in Grey Market before they get listed in stock exchange. Grey market premium can be in positive or in negative based on demand and supply of the stock.

Grey Market Premiums are also attached with words ‘Buyer' or ‘Seller'.

They tell the price either at which buyers are willing to buy shares or the price at which sellers are willing to sell their IPO shares.

The market is usually tracked to get a sense of the listing prospects.

Kostak

Kostak (or price of application) is the premium amount in rupees at which IPO applications are being traded in IPO Grey Market. Usually ‘Kostak' value is defined as the premium of a maximum lot retail application in an IPO.

Kostak price is important mostly before issue is close for subscription and final bidding status is available to the IPO investors. Very few IPOs applications are traded after final bidding status is available to the investors.

‘Kostak' is especially for people who do not want to take risk with IPO allotment or listing gains.

Dabba Trading

Dabba means box and a dabba operator, in stock market terminology is the one who indulges in dabba trading.

His office is like any other broker’s office having terminals linked to the stock exchange showing market rates of stocks.

However, the difference is that the investor’s trades do not get executed on the stock exchange system but in the dabba operator’s books only.

A dabba operator acts as a principal to all the trades and not as an agent of the client.

He is a counter party to the trades, whereas, he should be the Clearing Corporation who guarantees trades on the BOLT/NEAT system.

This kind of operation, where trade is kept within the books of the operator is called “dabba” in the popular market terms.

Conclusion

Along with IPO stocks, grey market also trades in already listed stocks too.

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